The Benefit of Longer-term Biotech Deals

Biotechnology is a failed 30-year experiment, says Harvard Business School professor Gary Pisano. For most of its existence, income has been nonexistent - the total for public companies broke zero for the first time in 2002 and hit total operating income of about $2.5 billion on just over $35 billion in sales in 2004, Pisano observes in his book Science Business (Harvard Business School Press, Nov 2006). Remove Amgen from the picture, and income dips below zero.

Pisano says he thinks part of the problem is too short relationships. "They call these things alliances but they're not, they're arms-length contracts," he says. "The average length of a partnership is four years. Drug development is 12 years, so this represents a very short-term commitment. Effective development needs a free-flow of information, a true collaboration. There is a learning curve, so there is a real advantage in working with a consistent team over time."

Pisano says longer partnerships will take milestone pressure off biotech teams and make R&D longer-sighted and, he says, ultimately more productive. "Big pharma brags about their number of deals," which he puts at 40 or 50 a year. "But they should shoot for two or three really deep deals."

Tim Keith, CSO of St. Laurent, Canada-based Genizon BioSciences, agrees, but says it is just as important to put in a deal - no matter the length - milestones that work, and for biotech to be vigilant that both parties share the same expectations around these milestones.